[Issuer] CapitalNow Cannabis

About

CapitalNow Cannabis (“CNC”) provides asset-based financing to the cannabis industry; we specialize in account receivables financing/factoring and are adding equipment financing to our service offering. Traditional financial institutions and service providers have not offered their standard asset-based lending (ABL) services to the cannabis industry due to the inability of their current underwriting process to assess and mitigate risk, coupled with a fear of being associated with a recently illegal sector.

Over the past 13 years, our team at Capital Now has built one of Canada’s most reputable alternative financing companies, having underwritten over 85,000 transactions. CNC is uniquely positioned to succeed in the emerging cannabis industry due to our prior experience in funding oil and gas production. Which was Capital Now’s previous core focus; it shares many similarities with the cannabis industry; both have a high barrier to entry, lack of available working capital, onerous safety and compliance, and is highly taxed and regulated. CNC applies historically proven as well as newly developed and specialized processes to assess and mitigate risk in the cannabis industry.

CNC is also the first cannabis financing company to be accepted into the IFA (International Factoring Association) in February 2021.

Company

Please give an overview of the legal structure.

CapitalNow Cannabis (“Asset Originator”) is launching CapitalNow Financing, CNC Division LLC (the “SPV”), which will offer for sale to investors tokens, corresponding to certain payment obligations owed to the SPV by account debtors and borrowers.

Organization

How many full-time equivalent team members do you have and what do they do?

Our team has seven full-time team members and four sales representatives. Our CEO and COO, Gerry and Natalie Wawzonek, have been in the general factoring business for over 13 years and built one of Canada’s reputable alternative financing companies called CapitalNow. Gerry is also on the Advisory Board of the IFA. Joshua Reynolds is our President and leads the sales and marketing teams, while Pep Ruckpanich is our CFO and leads the defi initiative. Luke Duri is our Director of Credits and Collections. Four of our team members are Certified Account Executive in Factoring (CAEF).

Have you sold equity? Are you venture-funded, if so please describe the previous rounds, money invested, and lead investors.

We are self-financed and have not sold any equity. CapitalNow Cannabis is a joint venture between Salt Capital Inc. and CanHem Capital Partners Inc.

Is your business sustainably profitable or well funded with sufficient cash runway?

CNC has been bootstrapping operations to date and has recently achieved profitability, despite having a cost of funds of over 30%.

Asset Details

Describe the asset collateral that you seek to finance.

Asset Type Average Value Average Maturity
Invoice $93,250 30 - 60 days
Equipment $430,000 12 - 36 months

CNC mainly buys invoices issued by Licensed Producers (LPs) from the Provincial Governments of Canada (B2G) at a discount. These provincial governments, which earn AA- to AA+ credit rating, and a few select larger and bank quality LPs (B2B) have made it through underwriting and are approved as account debtors. New account debtors that have not received the same credit standing as the provincial boards and bank quality LPs have a credit limit placed on them. They earn their way towards a more solid credit standing with CNC’s internal credit rating system.

Describe your previous track record related to this business proposal.

As of July 27th, 2021, the company originated over $3mm in loans and had no defaults. CapitalNow has done $500mln with a historical 0.5% default rate (amount defaulted divided by total capital deployed). We have been rapidly growing, and in July, we have signed up seven more clients with $1.5mln factored. The cannabis industry requires working capital; we anticipate originating cannabis-related loans and invoices up to $50mln in the next six months.
Operationally, our current back office is experienced and has already successfully turned over more than 85,000 transactions in the general factoring business. Our team can routinely process 1,500 invoices per month, giving us an operational capacity of $150,000,000 per month.

Describe the risk of the assets you are proposing. How do you evaluate and manage that risk?

Factoring of Accounts Receivable:

  • Credit risk - minimized as most of the invoices we factor are issued by the Provincial Governments of Canada Marketing Boards (AA- to AA+ credit rating), including OCS, AGLC, BCLDB, SQCD, NTLCC, SLGA, and NSLC.
  • Counterparty risk - mitigated by verification and government-mandated chain of custody processes.
  • Price dilution from stale inventory - we have a proprietary system that can predetermine dilution on future invoices, this gives us the ability to adjust advances for newly purchased invoices to mitigate dilution risks.
  • Changes in government cannabis procurement process - we work closely with provincial boards and agencies and also factor B2B invoices from bank quality account debtors.

Equipment Financing:

  • Failure for borrowers to make monthly payments - we give preferential approval to companies with cannabis sales amendment so we can factor their government securitized AR if required
  • Failure to recoup outstanding loan balance from sales of underlying assets (equipment) - in certain circumstances, the equipment manufacturer will participate in guaranteed buy-backs
  • A large portion of equipment being financed has multi-industry uses but cannot be financed through regular channels because of the cannabis association. The secondary market is already established and will be open to buying these assets.
  • General business risk - we have a network of referral partners to assist our clients with selling their products or company.

Disclosures

Please describe any conflicts of interest or potential conflicts of interest or any relationship that could compromise or be viewed to compromise the decision-making of the company.

None. Our directors have signed statements confirming that we hold zero holdings in privately owned or publicly traded Cannabis corporations or any assets in cannabis suppliers, consulting agencies, or logistic companies.

Are there or have there in the last 10 years, been any criminal, civil, regulatory or administrative proceedings against (i) the Company or any of its principals or (ii) the product in any similar such matters including reparations, arbitrations, and negotiated settlements? If so, please describe.

No

Are there any further disclosures that interested parties should be aware of?

No

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